Consumers Poised to Pick Up Spending Heading into Holiday Season
The economic outlook for consumers remained strong in early November as their income expectations rose, suggesting Americans could increase their spending heading into the important holiday retail season.
The University of Michigan on Friday said its consumer sentiment index was 98.3 in November, down slightly from 98.6 in October. Still, the index remains at high levels.
Sentiment this year is the highest since the turn of the century. Meanwhile, among the working-age population, those aged 25 to 54, the anticipated annual gain in pay was 3.6% in November, the best in the past decade, according to the survey.
Though consumer confidence hasn’t been a great guide to consumption growth recently, its current level is consistent with solid spending growth, according to Michael Pearce, senior U.S. economist at Capital Economics.
“Strong consumer spending momentum should persist, so long as income expectations remain supported by a healthy and vibrant labor market,” according to analysis released by Oxford Economics in response to the report.
Wages grew in October at the fastest rate in nearly a decade and the unemployment rate remained at a 49-year low. Employers added 250,000 jobs too, which is reflected in the latest sentiment report. Consumers’ view of the current economic situation remained elevated, though their expectations for future conditions declined at the beginning of November. The survey also showed Americans’ expectations for inflation in both the near and long term have risen over the past year.
“The stability of consumer sentiment at high levels acts to mask some important underlying shifts,” said Richard Curtin, the Michigan survey’s chief economist. “Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates.”
Meanwhile, a bit of an age divergence is apparent in the report, according to Mr. Curtin. Younger Americans have benefited most from positive income gains, while older consumers were more likely to complain about falling living standards because of inflation.
Measures of how consumers feel about the economy climbed after President Trump was elected in 2016 and have been buoyed by strong economic growth, low unemployment and rising wealth.
But rising interest rates, a pricey housing market and stock market volatility threaten that consumer buoyancy.
Analysts also think political tensions could harm consumers’ outlook, but that didn’t appear to be the case in the latest sentiment data. Though there was only a one-day overlap after the midterm election results and the early-November survey’s closing, those “few cases held expectations that were identical with the data collected earlier in the month, which isn’t so surprising given that the split between the House and Senate was widely anticipated,” Mr. Curtin said.
Source: Dow Jones